General Mills (GIS) reported strong results for the first quarter of fiscal 2011. For the quarter, adjusted earnings increased 12.9% to 70 cents a share, compared with 62 cents in the year-ago period.
The quarterly EPS surpassed the Zacks Consensus Estimate of 63 cents by 11.1%. Profits were mainly driven by strong cereal and snack sales growth.
Management reiterated its fiscal 2011 earnings in the range of $2.46 – $2.48 a share. Excluding mark-to-market effects and the tax charge related to health care legislation, the fiscal 2011 earnings guidance reflects an annual growth of 7% – 8%.
Total revenue for the reported quarter grew 1.5% year over year to $3.5 billion. The quarter experienced volume growth which was partially offset by negative currency translation.
General Mills gross margin increased 177 basis points (bps) to 43.1% in the quarter compared with the year-ago period, reflecting improving operating efficiencies, a successful cost-containment program and effective supply-chain management.
Segments
Revenue for the U.S. Retail segment expanded 2% year-over-year to $2,446 million in the quarter, portraying a 1% contribution from volume (measured in pounds) growth and another 1% coming from favorable price and product mix. Revenue at the International segment grew marginally by 0.4% year-over-year in the quarter to $660 million, reflecting a 4% volume (measured in pounds) growth, fully offset by a 4% unfavorable currency translation.
Compared with the year-ago period, the Bakeries and Foodservice segment revenue improved marginally by 0.2% to $426 million in first quarter 2011, demonstrating a 3% increase in volume (measured in pounds), partially offset by a 2% unfavorable impact from divestitures.
In the quarter, operating profit at the U.S. Retail and International segment dropped 3.1% and 1.4% respectively. However, operating profit at the Bakeries and Foodservice segment grew 11.2%. Total segment operating profit slipped 1.7% year-over-year to $749 million in the quarter.
Balance Sheet and Share Repurchase
At the end of first quarter of fiscal 2011, the company’s operating cash flow plunged 35.4% year over year to $178 million, primarily due to higher working capital requirements. During the first quarter, General Mills repurchased 21 million shares of its common stock for a total of $788 million.
Based in Minneapolis, General Mills manufactures and markets branded consumer foods worldwide. General Mills shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. Our long-term recommendation for the stock remains Neutral.
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